The Harvard Business Review recently identified outsourcing as one of the most important management ideas and practices of the past 75 years. However, making the decision to outsource is a complex initiative for any organization.
Outsourcing generally has multiple dimensions that need to be balanced:
First, the selection of a strategic partner (typically a local,specialized vendor) who can provide a cost-effective yet customized solution. Second, the degree to which the vendor provided solution may be in whole, or part of, an identified business process and/or practice.Where as “In-sourcing” is the creation of an internal “umbrella” organization whereby the Human Resources department retains the transactional components of HR business processes and also introduces a “service center” model to address employee specific questions, needs and or issues.
Alternatively, deciding to “off-shore” your out-sourcing solution is often the most complex yet, cost-effective approach; soliciting the assistance of a company based out of the U.S. The bottom line to consider when addressing this important initiative is that the Human Resources department is responsible for ensuring these practices are done well and in a way that supports the business objectives, all the while managing cost and providing a concrete measurement of Return on Investment (ROI). Therefore, risks associated with off-shoring solutions(such as poor customer service, delays in transactions, and hidden operational costs) are often greater than out-sourcing to a local vendor or designing an in-sourced solution. It is generally agreed that the best balance of cost, customer service, and efficiency comes from out-sourcing to local vendors.
So how does an HR Department make a solid argument for moving toward an outsourcing solution with a local vendor?
A few areas that needs to be considered include:
- A comprehensive review of your current transactional procedures in the HR and Benefit Departments
- Analysis of the headcount and budget allocation dedicated to the aforementioned practices from the following departments, including but not limited to: HR, Benefit, Accounting, Office Management, Payroll, Marketing, et cetera
- The extent of IT/IS involvement, including staff time, hardware/software costs, server space, upgrades, security
- An assessment of your current data integrity affecting reporting, down-stream systems, company financials, and automation opportunities
- The effectiveness of your current communication strategies
In a recent engagement performed by Craford with a mid-size peninsula based employer, addressing cost, service quality, and vendor management were areas of concern when considering outsourcing. Further, this particular Company had already invested a significant amount of capital on Consultant fees to assist in outlining possible business practices best suited for outsourcing. Unfortunately, at the conclusion of the initial study, there were few resources to help design, implement, and measure the recommendations, not to mention the lack of a communication plan to address the concerns of Executive Management and impacted employees. Craford was employed to construct the manpower plan, blue print and road map for implementing a global HR Business Center (using the Service Center model), including the documentation of all business processes for reference tools. This entailed a beginning-to-end project plan, communication strategy and redesign of individual career paths, along with a comprehensive HR Business Center “Playbook” to guide implementation and on-going operations. The end product resulted in a comprehensive implementation, and clear communication of the enhanced environment, exceeding the mutually defined objectives.
Finding the right partner to satisfy the objectives set forth by the outsourcing criteria requires systematic due diligence by both parties. When the outsourcing objectives are met, the organization may expect the following long-term hard and soft ROI:
Decreased capital expenditures
- Software and ongoing maintenance/licensing/support
- Specialized IT staff
- Specialized consultants
- Costs spread over greater number of employees served Staff upgrades and redeployment
- The magnitude of ROI is driven by the ability and the willingness to change
Enhanced business process management
- Maintaining a close eye on vendors, quantifying the completion of target milestones, and appropriate Service Level Agreements (SLA)
- Evaluation of vendor performance; assessment of metrics, data collection methodology, analyzing and reporting results